The 24-year-old, who joined the Tigers from Manchester United in January 2011, will remain at the KC Stadium until the summer of 2016.
Chester told the club's official website, www.hullcityafc.net: "It's nice to get the paperwork out of the way.
"I'm happy here and I've got a great relationship with the rest of the lads. I also enjoy living in this area. This is the perfect situation."
Central defender Chester made 48 appearances during the club's promotion winning npower Championship campaign.